Energy Prices Are Moving Modestly Higher To Start The Week As Equities Try To Find A Bottom After Another Brutal Week Of Selling
Energy prices are moving modestly higher to start the week, as equities try to find a bottom after another brutal week of selling, and the world continues to wonder what is worse between a shortage of supply, or the shortage in demand it will eventually bring.
In the bullish column this morning, Shanghai is in the process of reopening after a multi-month lockdown, and Russia cut off natural gas flows to Finland. Unlike most of Europe, Finland has other options to replace those Russian supplies, which probably goes a long way to explaining the muted reaction to that latest move in the global energy chess match.
Money managers added new longs, and covered old shorts last week, pushing their net length to the highest levels since February. That said, the net length held by the large speculators remains well below the past several years as the big funds seem either afraid of, or prohibited by their risk management departments from, making large wagers on energy prices.
Refined product open interest ticked higher off of multi-year lows for another week as a return to more tolerable volatility seems to be encouraging some flows back into the ULSD contract. WTI meanwhile saw its OI drop to a new 4.5 year low as volatility and competing products both seem to be taking a toll on the NYMEX contract, especially given the focus on waterborne crude oil this year.
Maybe they went on Spring Break? After a month of holding near unchanged, Texas led a big jump in active drilling rigs last week, adding 8 rigs in the Permian basin, and accounting for 12 of the 13 new rigs put to work according to Baker Hughes’ weekly count. If the recent 3 week average of 9 rigs/week holds, we could see the rig count reach pre-pandemic levels by the fall. A pair of Rystad energy reports last week suggest it will take 5 years for employment in the oil and gas sector to reach pre-pandemic levels, even as parts of the Permian are on pace to reach record output later this year.
The EIA this morning highlighted retail diesel prices in New England, which surged north of $6 last week. Now that the NYH diesel bubble finally popped and wholesale prices dropped more than $1/gallon last week relief is on the way for consumers, and retailers will enjoy some incredible margins on the way down. It’s also worth noting that even though NYH spots were trading more than $1 above California levels during the price spike, retail prices along the East Coast were still trading below those on the West Coast.
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Gasoline Futures Are Leading The Way Lower This Morning
It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.
Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.
A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.
Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.
Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.
Click here to download a PDF of today's TACenergy Market Talk.
The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days
The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.
The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.
An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.
Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.
In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.
The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.
Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.
Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.
PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.
Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.